Vol 10 (2013) - Issue 5

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New German Proposal for Insolvencies of Groups of Companies

Introduction
Shortly after the European Commission published its proposal for an amendment of the European regulation on insolvency proceedings on 12 December 2012 ('Proposed EU Insolvency Regulation Amendment') – and in this context for an introduction of rules on insolvencies of cross-border groups of companies – the German Federal Ministry of Justice issued its Discussion Draft on an Act for the Facilitation of the Processing of Insolvencies of Groups of Companies (Diskussionsentwurf eines Gesetzes zur Erleichterung der Bewältigung von Konzerninsolvenzen) on 3 January 2013 ('Proposed German Insolvency Code Amendment'). This paper intends to summarise the Proposed German Insolvency Code Amendment and to shed some light into its international scope of application and its interaction with the Proposed EU Insolvency Regulation Amendment.
The new German rules fall into four categories: (i) rules promoting a uniform insolvency venue for group companies, (ii) rules promoting the appointment of a uniform liquidator, (iii) a formal coordination procedure and (iv) informal coordination obligations. The German Ministry of Justice particularly emphasised its intention not to introduce any concept of substantive consolidation (i.e. one joint insolvency proceeding covering several group companies and one insolvency estate resulting from the estates of several group companies which is liable vis-à-vis creditors of several group companies). As a consequence, the new procedural rules have only a limited effect; in particular, there are no instruction rights of the players of different insolvency proceedings inter se and it is a general principle that no estate is obliged to accept a disadvantage for the benefit of another estate, because such instruments would have an effect which would tend to the concept of a substantive consolidation of the different estates. On the contrary, each insolvency administrator remains obliged to promote the best interests of his estate (§ 1 German Insolvency Code) and is liable in case he accepts a disadvantage for the benefit of another estate (§ 60 German Insolvency Code).
On the one hand, when it comes to the general coordination framework, the European coordination rules applicable to a group insolvency scenario are similar to the European coordination rules applicable between main proceedings and secondary proceedings relating to the same debtor and have, as a consequence, generally a rather small impact on the different players in a group insolvency scenario. The main focus of these European rules are informal coordination obligations (which slightly differ from the German informal coordination obligations in details) – there is no formal coordination procedure comparable to the concept suggested in Germany. On the other hand, when it comes to procedural rights pursuant to proposed Art. 42d para. 1 lit. (b), (c) and (d) European Insolvency Regulation, the Proposed EU Insolvency Regulation Amendment has a much stronger impact on the different players since the Proposed German Insolvency Code Amendment does not provide any comparable instruments.

Uniform venue
Germany intends to introduce – in addition to the venue at each individual debtor’s COMI which remains in force – a uniform venue for all companies of the same group (which have their COMI in Germany), if one of the debtor companies (or its insolvency administrator) requests such a uniform jurisdiction pursuant to proposed § 3a German Insolvency Code. The uniform venue is in this case the COMI of the company requesting such uniform venue.